Finnish IT Outsourcing Intelligence Report 2011

IT Sourcing Europe

European IT Outsourcing European IT Outsourcing Market
Intelligence

Intelligence Report 2011:
Finland

July 2011

European IT Outsourcing Intelligence Report 2011: Finland

European IT Outsourcing Intelligence Report 2011: The UK

Contents

Executive Summary .......................................................................................... 3
Survey Overview ............................................................................................... 3
Profile of Outsourcers....................................................................................... 5
IT Outsourcing Drivers and Factors ................................................................ 10
IT Outsourcing Challenges .............................................................................. 12
Client – Vendor Relationships ........................................................................ 13
IT Outsourcing Costs ....................................................................................... 16
Impressions of IT Outsourcing ........................................................................ 17
Future Adoption of IT / Software Development Outsourcing
by Current Outsourcers……………………………………………………………………………….18

Challenges of the In-House IT / Software Development ................................ 19
Factors Keeping In-House Development Companies Away From ITO…………..20
Future Adoption of IT / Software Development Outsourcing
by Current Non-Outsourcers……………………………………………………………………… 21

Key Findings’ Discussion ................................................................................. 23
Conclusions ..................................................................................................... 25

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Executive Summary

This Intelligence Report is based on the survey of the 227 Finnish companies that either outsource their Software Development / Information Technology
function(s) to an external service provider onshore (within Finland), nearshore (within/close to the same time zone) and/or offshore (more than 2 time zones
away), or develop their software/IT solutions in-house.

The Report aims to help Finnish outsourcing companies:

Get an in-depth understanding of the current IT Outsourcing demands and trends
See what challenges are facing their market peers / competitors and how they respond to them
Revise / improve their current IT Outsourcing engagements / business models based on the industry best practices

The Report aims to help Finnish non-outsourcing companies:

Better understand modern software development/IT costs optimization and/or reduction strategies
See what challenges are facing the in-house software development and how their market peers / competitors respond to them
Evaluate own readiness to adopt the outsourced / distributed development
Find out what their market peers think about software development /IT Outsourcing and how they are / will be preparing for adoption of the outsourced
development in the future

Survey Overview

The Finnish IT Outsourcing (ITO) and In-House Software Development (SD) survey was conducted between May 12 and June 10, 2011, in the frames of the All-
European ITO research.

Survey goals:

Explore factors that drive Finnish companies to outsource their SD/IT functions in 2011
Explore challenges associated with offshore/nearshore outsourcing and the most effective problem solving techniques
Explore the use of different business models in ITO engagements and find out which model works best for what type of companies and industries

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Explore factors that keep Finnish companies away from outsourcing their SD/IT function(s)
Compare and contrast the 2011 and future ITO demands across diverse Finnish industries

The survey was available online and hosted by SurveyMonkey, the world’s leading provider of web-based survey solutions. In order to reach as many Finland-
based companies as possible, IT Sourcing Europe used its own database of business contacts and sent out a survey invitation email to each company’s decision
maker(s) (C-level executives, IT / Outsourcing Managers, Directors, Heads of Software Development etc).

Additionally, inbound marketing initiatives were launched in order to attract more companies to participate in the survey. In the frames of this initiative, the
following steps were taken:

Online press releases and survey announcements distribution;
Survey localization and optimization in social media such as LinkedIn, Facebook, blogs ( Twitter, Word Press, IT Sourcing Europe’s Blog), event
management systems (Amiando), and B2B web portals (Europages, Hoovers)

All data obtained were analyzed in the form of industry aggregates. The answers to the open-ended questions were organized by their relativity to the study goals
and displayed as the option “all other responses” in charts and graphs further in the Report.

Outsourcing Activity & Categories Surveyed:

The following ‘outsourcing activity’ is referred to in the 2011 Finnish ITO Intelligence Report:

Software Development / Information Technology Outsourcing (SD/ITO) is the process of transferring part of/entire software development function and/or
other Internet related work to the execution by the external IT services provider(s)

The following categories fall under this activity: These categories further fall under the five key areas of expertise:

Application (app) development and maintenance; Web (Web 2.0, .NET, Java, PHP, open source etc);
Website / ecommerce systems; Enterprise 2.0 (J2EE, J2SE, C#, MySQL etc);
Data warehousing; Mobile development (J2ME etc);
IT security; Embedded development;
Data / voice network operations; Software as a service (SaaS) and Cloud Computing
Remote IT infrastructure management

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Profile of Outsourcers

Do Companies Outsource Any Element of Their IT / Software Current Outsourcing Experience
Development?

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Company Size (Headcount) Primary Industry

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Revenue Growth Expectations in 2011

Outsourcing Companies In-House Development Companies

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Size of Project Team on Vendor’s Side (Headcount) Value of the Outsourced Project(s) (€)

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The Outsourced Areas of Expertise Do Companies Multisource?

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IT Outsourcing Drivers and Factors

IT Outsourcing Destinations Top Three Drivers to Outsource IT / Development

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Factors’ Rating In Terms of Their Importance In the Choice of the Factors’ Rating In Terms of Their Importance In the Choice of the
Outsourcing Destination Outsourcing Partner

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IT Outsourcing Challenges

Top Three Challenges of the Outsourced IT / Development How Companies Respond to Their Challenges

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Client – Vendor Relationships

How Companies Found Their Current ITO Partner(s) Size of ITO Partner(s)

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Business Model Used In the ITO Engagements Who Hires IT Talent To Be Involved In the Outsourced Project
Execution?

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Do Companies Know Exact Salaries of Their Project Staff On Vendor’s Are Companies Satisfied With the Provided Services / Quality of
Side? Delivery?

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IT Outsourcing Costs

How Actual Incurred ITO Costs Compare To the Contracted Ones Actual Savings From ITO

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Impressions of IT Outsourcing

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Future Adoption of IT / Software Development Outsourcing By Current Outsourcers

Do Companies Plan to Continue With Their Outsourced Operations In Where Will Companies Transfer Their IT / Development
the Future? In the Future?

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Challenges of the In-House IT / Software Development

Top Three Challenges of the In-House Software Development How In-House Development Companies Respond to the Challenges

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Factors Keeping In-House Development Companies Away From Outsourcing

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Future Adoption of IT / Software Development Outsourcing By Current Non-Outsourcers

Circumstances In Which Companies Will Be Likely To Consider Destinations Companies Will Transfer Their IT / Development If They
Outsourcing In the Future Make Such a Decision In the Future

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How Companies Rate the Following Factors In Terms of Their Importance How Companies Would Look For ITO Partner(s) If They Make Such a
In The Future Choice of ITO Partner(s) Decision In the Future

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Key Findings’ Discussion SaaS/Cloud and embedded development solutions are the least outsourced
ones in Finland.

Finnish IT Outsourcing and In-House Software Development Survey 2011 is The majority of Finnish outsourcers multisource their solutions, i.e. distribute
the first-ever attempt to study and analyze trends on Finland’s ITO market as their development among several ITO service providers in different locales.
well as to make forecasts for the future evolution of the outsourcing
According to the survey findings, the top three drivers of the outsourcing
penetration into diverse Finnish industry sectors and verticals.
decisions in Finland are reduction of operating costs, focus on core
The survey underscores that IT / software development outsourcing is not a competences and shortage of domestic IT skills/resources. Other reasons to
new practice within the Finnish business community and cumulative 39% of outsource are: improvement of business development strategy and software
companies have been outsourcing their operations for 12 to 24 and more product quality, freeing in-house staff for other business purposes and
than 37 months now. acceleration of time-to-market. None of the survey respondents chose to
outsource in order to accommodate 24/7 operations and respond to
The most preferred outsourcing destination is nearshore (more than 65% of pressure from executive management/investors to lower down IT
respondents), followed by onshore (more than 20%). Offshore outsourcing is /development costs.
used by only 10% of companies.
The top four most important criteria in the choice of the ITO locale are
The prevailing majority of the Finnish outsourcers come from the B2B available IT talent pool, strong R&D capability, positive references from peer
focused IT/software development sector, followed by mobile development, companies and appropriate foreign languages skills. Cultural proximity comes
digital media and B2C focused IT/software development. to be the least important criterion. Regarding the choice of the ITO partner,
Finnish companies value the following five criteria most of all: low costs,
More than 65% of the survey respondents admitted having 3 to 5 specialists
successful pilot/test project completion, positive vendor references from
in the augmented staff (vendor’s team(s)) and more than 70% value their
peer companies, sound experience in similar projects and realistic HR growth
overall outsourced projects at €0-49K. Based on this finding, Finland appears
capability. The latter finding denotes that many today’s outsourcers in
to be the country of small ITO contracts and small-scale projects.
Finland are focused on strategic use of outsourcing and think proactively
As the survey shows, the Finnish companies currently have the equal about their project/team scaling while planning their ITO engagements.
demands for Web and Enterprise development outsourcing services (62% of Vendor's global footprint and reputation, level of quality certification (e.g.,
respondents each), while the demand for the outsourced mobile ISO, CMMI etc) and vendor’s presence in Finland are the least important
development is almost half less (more than 25% of outsourcers). factors in Finnish companies’ choice of the ITO partner.

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Asked hypothetically to weigh the same factors’ importance in the future and each project team member on vendor’s side is a negative hallmark that
choice of the ITO partner, today’s in-house development companies pointed the vast majority of Finland’s outsourcers are still facing hidden agenda and
to positive references from peer companies, low costs, sound experience in lack of transparency in their outsourced operations.
similar projects and successful pilot/test project completion as the most
important and flexible contract terms as the least important ITO partner Another surprising finding is that not a single Finnish outsourcer surveyed
expressed any dissatisfaction with their current ITO vendor(s) and quality of
selection criteria.
project deliveries. Almost 70% of companies said outsourcing their software
To find their current ITO partner(s), more than 85% of ITO service buyers development / IT function has been the right decision. Regarding other
used peer references and slightly less than 25% did online research. Vendor’s impressions of ITO, 43% of companies believe it is important to have
business development / sales campaigns run in the forms of direct mailing, vendor’s team working within and/or close to the same time zone as Finland
telemarketing and likewise activities worked well for 15% of Finnish ITO and another 43% think that although outsourcing really saves operating
buyers and publicly released RFP/RFQ / project bidding worked well for costs, it inevitably increases the project management costs.
another 15% of companies. In general, the dominant majority of Finnish
outsourcers partner with vendors who are less than 50 employees by In 2011 Finnish outsourcers face the following challenges: poor
headcount and none of the companies surveyed admitted partnering with communication with vendor’s project managers and/or development team(s)
ITO providers who are 500 and more employees in size. This finding explains (71% of respondents); vendor’s inability to understand client’s business
well why almost 60% of the Finnish outsourcers surveyed partner with their concept and goals (another 71%); delayed delivery and missed project
providers via the project-based service delivery model. Small providers are milestones (42.9%); change management (29%), cultural difference (28%);
oftentimes focused on the quantity rather than quality and are, thus, busy poor quality of deliveries (15%) and the lack of appropriate resources on
with winning new clients rather than transforming their dedicated vendor’s side (13%). To respond to the ITO challenges, 86% of companies
development centers and project offices into the centers of technological increase face-to-face communication with project manager(s), 42% dedicate
excellence. As a result, small ITO providers are very short in resources and more management resources and revise and update their vendor
cannot afford to play a high margin game. They normally win ITO contracts management processes, 29% consider changing their current ITO partner(s),
by low bidding which is still a well preferred option among the Finnish ITO 13.5% bring in outside assistance to help solve issues and another 13.5%
service buyers. However, the following finding that cumulative 42.9% of the consider multi-sourcing their solutions.
survey respondents are fully or partially involved in the vendor’s HR selection Regarding the costs of ITO, 43% of Finnish outsourcers say the actual annual
process is a positive hallmark of a rather careful approach many Finnish incurred costs of the outsourced development are about the same as in their
outsourcers have towards monitoring the scale and structure of their contracts, 38.5% point out their actual incurred costs are up to 25% higher
outsourced teams on vendor’s side. On the other hand, the fact that only than expected and another 38.5% claim their actual incurred costs are up to
slightly more than 14% of the companies surveyed know exact salary of every 25% lower than expected. Fifty-six percent of outsourcers save 10% to 39%

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from their outsourced IT / development, while 14% save less than 10% and with their provider(s). On one hand, it means that a lot of Finnish
another 14% save 60% and more from ITO. outsourcers do not have very high requirements for their ITO
partners and engage extensively with those who bid the lowest in
Regarding annual revenue growth expectations in 2011, more than 35% of their RFPs/RFQs. On the other hand, this finding may be rather
Finnish outsourcers anticipate 10% to 19% revenue growth and around 20% - alarming and suggest that Finnish outsourcers must redesign, revise
50% and more. In case of the in-house development companies, 40% expect
and/or improve their ITO engagements to be able to not only save
to increase their revenue by 1% to 9% and no participant admitted expecting operating costs, but gain strong competitive advantages via
50% and more in their annual revenue growth. This finding suggests that the permanent access to innovation, agility and scalability, the state-of-
outsourced development allows bigger revenue increase via the accelerated
the-art software product quality and increased margins.
time-to-market and ability to invest more in business development thanks to
the reduced IT / software development budgets. In Finland companies do not outsource because they want to have 100%
managerial control of their software projects, are afraid of the hidden costs
Conclusions of outsourcing, do not want to create any shared environments, think they
are yet too small and immature for such an undertaking etc. In 2011, the top
three challenges of the in-house development are pressure from investors
Finnish ITO and In-House Software Development survey 2011 allows
and/or executive management to lower down IT costs, high cost of domestic
benchmarking current state of affairs on the Finnish ITO market, and namely:
IT resources and slow time-to-market. The prevailing majority of non-
• The majority of companies outsource to reduce operating costs and outsourcers do nothing to fix their current issues. This finding allows
go to low-cost countries nearshore to locate all/some of the concluding that in the near future outsourcing will be used more intensively
elements of their IT/development functions across Finland’s diverse industry sectors as a key response to the current
• Although a lot of companies consider innovative and flexible business challenges of the in-house development. Today’s companies are very likely to
/ service delivery models to be an important factor in the ITO partner outsource in the future to accelerate time-to-market and decrease operating
selection process, they still use “traditional” models such as project- costs and are likely to outsource to access external lower-cost IT resources
based outsourcing (fixed price or time & material), which results in and/or IT resources/skills that are hard to find / too expensive within
poor communication between the ITO service buyer and supplier, Finland, to free in-house resources for other core purposes and to launch
hidden costs of outsourcing and distribution of the outsourced work 24/7 operations.
among Tier 1 and Tier 2 vendors
The top three ITO destinations of the future are nearshore, onshore and a
• Most of companies are somewhat satisfied with the ITO services
combination of nearshore and offshore. In the future, Finnish outsourcers
provided / quality of project deliveries, while not a single ITO buyer is
will still be relying on own online research, vendor references from peer
very satisfied and not a single one is somewhat or very dissatisfied
companies and public release of RFP/RFQ in their ITO partner selection
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process, but significantly more companies will realize the important of
cooperating with ITO consultants in developing their ITO strategy (up 20%
from now).

Summarizing the above findings, it is possible to assume that the demand for
the outsourced IT/development will be steadily growing across diverse
Finnish industries in the following months and more companies will be
utilizing nearshore locales as a source for innovation, less costly yet higher
quality resources, knowledge sharing and overall business diversification.

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About IT Sourcing Europe
Our Contacts:
IT Sourcing Europe is a UK company specialized in nearshore IT Outsourcing
consultancy, market research and analysis. The Meridian, 4 Copthall House, Station Square
Coventry, West Midlands,
IT Sourcing Europe provides:
CV1 2FL United Kingdom
• Top quality quantitative and qualitative IT Outsourcing market Email: info(at)itsourcing-europe.com
research and fieldwork services Tel.: +44(0)2476992505
• Evaluation of Central and Eastern Europe's IT Outsourcing services Web: www.itsourcing-europe.com
providers and their factual capabilities to deliver innovative Blog: http://itsourcingeurope.wordpress.com
technological solutions on time and on budget Follow our tweets @ITSourcingEurop
• Free consulting services for European companies planning to
outsource IT / software development functions and / or change their
current IT Outsourcing strategy / engagement Registration at the UK Companies House: 07217899
• Ad-Hoc IT Outsourcing strategy development and full-cycle support

IT Sourcing Europe cooperates with several European ICT and Outsourcing
organisations in terms of free analytics / information exchange. Amongst its
major information partners are Outsourcing Verband, Das Outsourcing
Journal, Outsourcing Portal, Ngi and others.

You are free to use, share and/or remix any part of this work as long as
you attribute it to IT Sourcing Europe.

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